Abbott spinoff AbbVie Inc. at center of Supreme Court case

High court to decide if deals between drugmakers violate law

March 26, 2013|By Peter Frost, Chicago Tribune reporter

The Chicago area's largest drugmaker has a stake in a U.S. Supreme Court ruling expected in June over so-called pay-for-delay deals between brand-name pharmaceutical companies and their generic competitors.

North Chicago-based AbbVie Inc. is at the center of the case brought by the Justice Department about a deal struck a decade ago involving the male hormone drug AndroGel, a treatment developed by the pharmaceutical arm of Brussels-based Solvay Pharmaceuticals.

Abbott Laboratories bought AndroGel, which logged $1.2 billion in 2012 sales, and a host of other treatments from Solvay in 2010 for $6.2 billion. It spun off its $18 billion branded pharmaceutical business Jan. 1 into what's now known as AbbVie.

While Abbott retained the rights to market the drug in overseas markets, AbbVie owns the drug's patents and the rights to market it in the U.S. It also is responsible for handling the legal defense before the Supreme Court of a case that will have broad implications for the pharmaceutical industry as a whole and dictate how and when cheaper generic drugs can enter the market.

Pharmaceutical companies, both branded and generic, are "viewing this as something that creates a risk," said Douglas Tsao, an industry analyst with Barclays Capital. "This could, in theory, force generic companies to fight to the bitter end in litigation," a costly and risky proposition that could dissuade some from challenging patents.

AbbVie's legal team was in Washington on Monday for the Supreme Court hearing, but an AbbVie spokeswoman said only that the company is confident the court would uphold previous rulings favorable to drug companies.

The government claims Solvay cut a deal with generic drugmaker Watson Pharmaceuticals, now Actavis Inc., that allowed Watson to launch a cheaper generic version of AndroGel in 2015, five years before it was due to lose exclusivity on one of its patents. In exchange, Solvay agreed to pay Watson up to $30 million annually, the government said.

Government attorneys alleged the deal violated antitrust laws and kept cheaper generic competition out of the market.

Branded pharmaceutical companies, like AbbVie, "could make the argument that this would stifle innovation, and I don't think they're just posturing," Tsao said. "They could revisit the wisdom or return on investment in developing potentially very innovative products with a questionable patent estate."

If similar cases are halted by the Supreme Court, more uncertainty would be introduced into the market, said Matthew Coffina, a Morningstar analyst.

"We'll no longer know with a high degree of certainty when generic competition will enter the market, and that's going to cause more volatility in cash flow and stock prices," he said. "The same thing is true for the generic side."

Christopher Griffith, a Chicago-based attorney at Leydig, Voit & Mayer who specializes in pharmaceutical and biotech intellectual property cases, said even if the court rules that the reverse payments are illegal, pharmaceutical companies will find a way to forge patent settlements.

"This will be of significance to the industry, no question about it, but it's not going to be earth-shattering," he said. "These guys are creative; they'll find other ways to conduct business and make money for their shareholders."